Thursday 18 January 2018

Bondholders make €60m profit in ESB finance deal

Donal O'Donovan

Donal O'Donovan

Bondholders are sitting on profits of more than €60m after backing a €600m financing deal for the ESB just last month.

The news comes as the State-owned power company plans to raise at least another €150m by issuing a 20-year inflation-linked bond.

However, it is the super returns being made by investors in the September bond that are turning heads in the markets.

The ESB issued €600m of debt on the bond market on September 4, in its first foray into the debt market since 2010.

The semi-state paid an interest rate of 6.25pc for the five-year bond.

That compares with a yield of 3.4pc for investors who buy a similar Irish government bond.

The profits are being reaped by investors because the ESB paper is now changing hands at more than 111pc of face value.

It would now cost €666m to buy the €600m of debt on the secondary markets where bonds are traded.

The increase in the trading price does not change the amount the ESB will ultimately have to repay when the debt falls due.

Market watchers say the sharp rise suggests the ESB may have overpaid to tap the markets in September, though some premium probably needed to be paid to ease the company's return to the bond market after a two-year absence.

Meanwhile, the 20-year bond that the ESB plans to raise a further €150m by issuing a 20-year inflation-linked bond that could be priced to yield an initial 5.9pc, a figure arrived at by adding up a coupon of 3.5pc and the country's current 2.4pc inflation rate.

That deal is due to price on October 25, according to a source close to the trade.

Bank of America, Merrill Lynch and Goodbody Stockbrokers have all been hired in an effort to drum up interest in the planned bond.

Irish Independent

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